Dec 22 - 28, 2008

A closer look at the Modaraba sector reveals the multi dimensional growth of the sector with some of the players showing consistent growth, innovation and diversification. One such company is Al-Zamin Leasing Modaraba headed by Basheer A. Chowdry. He is very modest person and rarely talks about prolific growth of the institution he heads. However, it may not be wrong to say that the entity has become a financial conglomerate.

Al-Zamin commenced its operation in 1992 with a paid-up capital of Rs 100 million and as on 30th June 2008 its equity exceeded Rs 393 million and assets under its management were touched Rs 3.9 billion. Recognizing its outstanding performance JCR VIS Credit Agency has assigned 'A' rating to its Shariah compliant term finance certificate, long term entity rating of 'A minus and short term rating of A2 with stable out look.

Over the years Al-Zamin has acquired shareholding and management control of Ghandhara Leasing and First Professionals Modaraba, which have been merged with it. In May 2007 Al-Zamin acquired shareholding and management control of Crescent Leasing Company with an equity base of Rs 600million and assets under management exceeding Rs 4 billion. Upon merger of Universal Leasing with Crescent Leasing the merged entity will be renamed as Al-Zamin Investment Bank.

The main focus of Al-Zamin for the nest few years will be to participate in the business plans of the exiting clients in the changing market conditions. In the past Al-Zamin has focused on leasing to key sectors like healthcare, educational institutions, CNG stations, transport and used motor vehicles. Al-Zamin is also actively considering entering into housing finance, portfolio management, short to medium term participation in the self liquidating business transactions and equity participation in profitable business ventures.

Among the Muslim countries Pakistan enjoys the distinction of incorporating the first organized and regulated move towards Islamization of financial system in the country in the form of Modarabas as back as the 80's. Since then, the sector has gone through many phases of development, experimentation and consolidation. With the introduction of new business models reemergence of a stronger and more vibrant sector seems certain.

According to Basheer A. Chowdry the main activity being undertaken by the Modarabas is the ijarah/leasing business. This segment is being handled by sixteen (16) Modarabas whereas others are involved in multiple activities like manufacturing, trading of commodities, equities brokerage etc. The financial year ending 30th June, 2007 witnessed a growth of 10% in the assets of the Modarabas.

According to Chowdry Sahib, "It is encouraging that lately IPOs of two new Modarabas have been successfully made through stock exchanges. First Allied Rental Modaraba was established with a paid up capital of Rs 300 million and First Treet Manufacturing Modaraba with a capital of Rs 143 million. The business models signify the diversity and capacity of the Modarabas to undertake multiple activities and marks a clear recognition of the potential and revival of the sector."

It is often debated whether commencement of Islamic banking will complement the Modaraba sector or pose fierce competition. Chowdry Sahib is of the view the emergence of Islamic banking in Pakistan is a very important event for the financial sector. Establishment of six new Islamic banks and growth of designated Islamic banking branches of the conventional banks has created significant visibility and demand for the Islamic financial services.

Chowdry Sahib strongly believes that the emerging regulatory framework has accelerated the process of Islamization in the country. Now Pakistan has Islamic banks, Islamic mutual funds and Takaful operator. All these entities are contributing towards further expansion of Islamic financial market. The favourable regulatory environment is also helping the Modarabas Sector to explore new business ventures and also facilitating closer cooperation with the Islamic banks, mutual funds and Takaful operators.

The level of close contact between the regulators and the players can be gauged from the fact that the review and re-drafting of the model agreements of the Modaraba sector for simplification and standardization has been completed in a very brief period. These model agreements were approved by the Religious Board in early 90's. In the recent years, State Bank of Pakistan also developed and introduced model agreements for a number of products offered by Islamic banks. It was observed that since both sectors i.e. Islamic banks and Modarabas are using different model agreements some operational difficulties were faced, particularly when the Modarabas have to enter into financial transactions with the Islamic banks.

The need was felt to bring the model agreements in line with the contemporary research and practices. For this purpose, model agreements approved by State Bank were suitably amended to meet the specific requirements of the Modarabas without making any fundamental changes in the concept. This has created an effective uniformity and ease for the Islamic financial sector of the country.

With a growing awareness of the Islamic financial services Modarabas are trying to be innovative in expanding and improving their business modes, products, skills and operational capabilities. They are also in the process of enhancing their equity base to cater to the needs of customers. Modaraba sector has also been exploring the potential of exporting its skills and experiences to other Islamic countries and also forge global alliance and linkages, Said Basheer.

Muhammad Shoaib, Chairman Modaraba Association of Pakistan presenting MAP's Best Performance Award to Basheer A. Chowdry, CEO Al-Zamin Leasing Modaraba.